Energy is pretty much a one way bet in the global economy, perhaps the best play at a time when Australia’s two speed economy is sputtering. Brokers are having a look at Woodside, just about the biggest pure energy play in the Australian market. The question, as ever, is how much is the future priced in? Merrill Lynch has a price target of $45.70 and a buy recommendation, arguing that the company’s Pluto project is priced in, but the M&A prospects are not:
The WPL investment case is heavily predicated on their challenging LNG growth projects. With Argentina recently signing a 5mntpa HoA with Qatar, higher demand from Europe and a positive outlook for Asia we believe that WPL’s projects, particularly the brownfield expansion of Pluto, are being too heavily discounted by the market.
Woodside is on a prospective earnings multiple of 19 ro 21 times, depending on who you believe. That is a fairly full multiple, as is to be expected in a sector with such good prospects. The forward dividend yield is 2.36%, which isn’t bad. Deutsche also has a buy and a higher price target of $50.80: UBS also has a buy and a price target of $49.55:
We now can’t see long lead items possibly being ordered for Pluto LNG T-2 until 2012. This also means an FID decision is not possible until around 2013. Net net, we think Pluto LNG T-2 can not possibly be on stream until around 2016 (at the earliest). All other projects appear on schedule / budget. Woodside has also agreed to sell Gulf of Mexico (GOM) shelf gas assets for US$27.5m. In our view, this suggests Woodside may possibly exit its other GOM deeper water oil assets, especially since Neptune has not gone to plan and Woodside has only one other relatively small GOM oil producer at Powerplay.
Woodside does appear to be performing reasonably soundly and may be that all too rare creature in the staggering local market. A reasonably safe investment.
http://www.scribd.com/doc/60399177/Merrill